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on Economic Design |
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Issue of 2019‒07‒15
eleven papers chosen by Guillaume Haeringer, Baruch College and Alex Teytelboym, University of Oxford |
| By: | Laura Doval |
| Abstract: | I introduce a stability notion, dynamic stability, for two-sided dynamic matching markets where (i) matching opportunities arrive over time, (ii) matching is one-to-one, and (iii) matching is irreversible. The definition addresses two conceptual issues. First, since not all agents are available to match at the same time, one needs to take a stance on which agents can form blocking pairs. Second, dynamic matching markets exhibit a form of externality that is not present in static markets: who is available to match in a given period depends not only on the arrivals into the economy, but also on who remains unmatched from previous periods. Dynamically stable matchings always exist. Dynamic stability is a necessary condition to ensure timely participation in the economy, by ensuring that agents do not strategically delay the time at which they are available to match. |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1906.11391&r=all |
| By: | Yannai A. Gonczarowski; Scott Duke Kominers; Ran I. Shorrer |
| Abstract: | In game theory, we often use infinite models to represent "limit" settings, such as markets with a large number of agents or games with a long time horizon. Yet many game-theoretic models incorporate finiteness assumptions that, while introduced for simplicity, play a real role in the analysis. Here, we show how to extend key results from (finite) models of matching, games on graphs, and trading networks to infinite models by way of Logical Compactness, a core result from Propositional Logic. Using Compactness, we prove the existence of man-optimal stable matchings in infinite economies, as well as strategy-proofness of the man-optimal stable matching mechanism. We then use Compactness to eliminate the need for a finite start time in a dynamic matching model. Finally, we use Compactness to prove the existence of both Nash equilibria in infinite games on graphs and Walrasian equilibria in infinite trading networks. |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1906.10333&r=all |
| By: | Akihiko Matsui (Faculty of Economics, The University of Tokyo); Megumi Murakami (Department of Economics, Northwestern University) |
| Abstract: | Centralized matching mechanisms and decentralized markets have been widely studied to allocate indivisible objects. However, they have been analyzed separately. The present paper proposes a new framework, by explicitly formulating a two-stage model where objects are allocated through a matching mechanism in the first stage and traded in the second stage market. In addition, one divisible good called money may or may not be available in the market. Every player demands at most one unit of object besides money. The players may face different priorities at each object type in the first stage. Each object type has a limited amount of capacity, called quota. Each player has a quasi-linear utility function. The present analysis sets forth the equivalence conditions under which stability and efficiency are attained in equilibrium. |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2019cf1112&r=all |
| By: | Grenet, Julien; He, Yinghua; Kübler, Dorothea |
| Abstract: | The matching literature commonly rules out that market design itself shapes agent preferences. Underlying this premise is the assumption that agents know their own preferences at the outset and that preferences do not change throughout the matching process. Under this assumption, a centralized matching market can often outperform a decentralized one. Using a quasi-experiment in Germany's university admissions, we provide evidence against this assumption. We study a centralized clearinghouse that implements the early stages of the university-proposing Gale-Shapley deferred-acceptance mechanism in real time, resembling a decentralized market with continuous offers, rejections, and acceptances. With data on the exact timing of every decision, we show that early offers are more likely to be accepted than (potential) later offers, despite early offers not being made by more desirable universities. Furthermore, early offers are only accepted after some time rather than immediately. These results and direct survey evidence are consistent with a model of information acquisition: it is costly for students to learn about universities and accepting a university that turns out to be inferior causes regret. We discuss and rule out some alternative hypotheses. Our findings motivate a hybrid mechanism that balances centralization and decentralization. By allowing sequential learning, it improves welfare, especially in markets with substantial learning costs. |
| Keywords: | Centralized Matching Market,Gale-Shapley Deferred Acceptance Mechanism,University Admissions,Early Offers,Information Acquisition |
| JEL: | C78 I23 D81 D83 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbmbh:spii2019208&r=all |
| By: | Hirotake Ito (Graduate School of Media and Governance, Keio University); Makiko Nakamuro (Graduate School of Media and Governance, Keio University); Shintaro Yamaguchi (Faculty of Economics, The University of Tokyo) |
| Abstract: | Centralized matching mechanisms and decentralized markets have been widely studied to allocate indivisible objects. However, they have been analyzed separately. The present paper proposes a new framework, by explicitly formulating a two-stage model where objects are allocated through a matching mechanism in the first stage and traded in the second stage market. In addition, one divisible good called money may or may not be available in the market. Every player demands at most one unit of object besides money. The players may face different priorities at each object type in the first stage. Each object type has a limited amount of capacity, called quota. Each player has a quasi-linear utility function. The present analysis sets forth the equivalence conditions under which stability and efficiency are attained in equilibrium. |
| Date: | 2019–01 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2019cf1113&r=all |
| By: | Sanna Laksá (University of Liverpool); Daniel Marszalec (Faculty of Economics, The University of Tokyo); Alexander Teytelboym (Department of Economics, St Catherine’s College, and the Institute for New Economic Thinking at the Oxford Martin School, University of Oxford) |
| Abstract: | Ascending (or second-price) and uniform-price multiunit auctions have appealing theoretical properties if bidders are symmetric and bid competitively. However, auction designers have long been skeptical about their use in practice. First, asymmetries due to value advantage in ascending (or second-price) auctions with a large common-value component can generate asymmetric equilibria with low revenues. Second, both ascending and uniform auctions are susceptible to collusion. Sequential ascending auctions make it especially easy to form and coordinate bidding rings. Third, uniform auctions are susceptible to low-price equilibria in which bidders can commit to coordinate on high bids for initial units and low bids for final, price-setting units in equilibrium what we call crank-handle bidding. All three of these patterns have been observed separately in certain settings among sophisticated and experienced bidders. We document what we believe is the first case of all three of these phenomena happening among the same, inexperienced bidders across related auctions for shing quota in Faroe Islands. Our findings indiciate that the under performance of ascending and uniform-price auctions are not just theoretical curiosities, but a pervasive phenomenon in practical auction design. We suggest straightforward improvements to auction design that could have mitigated these problems. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2018cf1096&r=all |
| By: | Bernhardt, Dan (University of Illinois & University of Warwick); Liu, Tingjun (The University of Hong Kong); Sogo, Takeharu (Osaka University of Economics) |
| Abstract: | We analyze optimal auction mechanisms when bidders base costly entry decisions on their valuations, and bidders pay with a fixed royalty rate plus cash. With sufficient valuation uncertainty relative to entry costs, the optimal mechanism features asymmetry so that bidders enter with strictly positive but different (ex-ante) probabilities. When bidders are ex-ante identical, higher royalty rates—which tie payments more closely to bidder valuations—increase the optimal degree of asymmetry in auction design, further raising revenues. When bidders differ ex-ante in entry costs, the seller favors the low cost entrant ; whereas when bidders have different valuation distributions, the seller favors the weaker bidder if entry costs are low, but not if they are high. Higher royalty rates cause the seller to favor the weaker bidder by less, and the strong bidder by more. |
| Keywords: | Auctions with participation costs : Royalty payments ; Optimal auctions ; Asymmetric auctions ; Heterogeneous bidders |
| JEL: | D44 G3 |
| Date: | 2019 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1200&r=all |
| By: | Hitoshi Matsushima (Faculty of Economics, The University of Tokyo) |
| Abstract: | This study investigates the unique implementation of a social choice function in iterative dominance in the ex-post term. We assume partial ex-post verifiability; that is, after determining an allocation, the central planner can only observe partial information about the state as verifiable. We demonstrate a condition of the state space, termed “full detection,†under which any social choice function is uniquely implementable even if the range of the players’ lies, which the ex-post verifiable information directly detects, is quite narrow. To prove this, we construct a dynamic mechanism according to which each player announces his (or her) private signal before the other players observe this signal at an earlier stage, and each player also announces the state at a later stage. In this construction, we can impose several severe restrictions, such as boundedness, permission of only tiny transfers off the equilibrium path, and no permission of transfers on the equilibrium path. This study does not assume either expected utility or quasi-linearity. |
| Date: | 2019–02 |
| URL: | http://d.repec.org/n?u=RePEc:tky:fseres:2019cf1116&r=all |
| By: | Jean-François Laslier (PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Panthéon-Sorbonne - ENS Paris - École normale supérieure - Paris - INRA - Institut National de la Recherche Agronomique - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics); Matias Nunez (CECO - Laboratoire d'économétrie de l'École polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique, CREST - Centre de Recherche en Economie et Statistique [Bruz] - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz]); M Remzi Sanver (LAMSADE - Laboratoire d'analyse et modélisation de systèmes pour l'aide à la décision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We propose a solution to the classical problem of Hurwicz and Schmeidler [1978] and Maskin [1999] according to which no Pareto efficient rule is Nash implementable. To this end, we consider implementation through mechanisms that are deterministic-in-equilibrium while lotteries are allowed off-equilibrium. We show that there are Pareto efficient rules which are implementable and that any such rule is implementable through some simple veto mechanism. Importantly , neither completeness nor transitivity of the preferences over lotteries are required to achieve implementation. |
| Date: | 2019–07 |
| URL: | http://d.repec.org/n?u=RePEc:hal:psewpa:halshs-02173504&r=all |
| By: | Takeshi Nishimura |
| Abstract: | We study informed principal problems in a bilateral trade environment where a seller and a buyer have private information about independent types affecting their interdependent valuations. The seller has full bargaining power to offer a mechanism. We prove both the existence of a D1 equilibrium and the uniqueness of the equilibrium interim payoff vector for the seller. The uniqueness result holds even if the refinement concept is weakened to the intuitive criterion under certain regularity conditions. The refined equilibrium payoff vectors for both players are characterized by the seller's best incentive-feasible allocation among those that are ex post incentive compatible and individually rational for the buyer. The allocation takes a simple format of (almost-)fixed prices if the virtual surplus is strictly increasing in the buyer's type. We show that the privacy of the seller's information causes undersupply of the good and reduces both players' interim payoffs. |
| Date: | 2019–06 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1906.10311&r=all |
| By: | Holmberg, Pär (Research Institute of Industrial Economics (IFN)); Ritz, Robert A. (Energy Policy Research Group (EPRG), Judge Business School, University of Cambridge) |
| Abstract: | Capacity mechanisms are increasingly used in electricity market design around the world yet their role remains hotly debated. In this paper, we introduce a new benchmark model of a capacity mechanism in a competitive electricity market with many different generation technologies. We consider two policy instruments, a wholesale price cap and a capacity payment, and show which combinations of these instruments induce socially-optimal investment by the market. Changing the price cap or capacity payment affects investment only in peak generation plant, with no equilibrium impact on baseload or mid-merit plant. We obtain a rationale for a capacity mechanism based on the internalization of a system-cost externality – even where the price cap is set at the value of lost load. In extensions, we show how increasing renewables penetration enhances the need for a capacity mechanism, and outline an optimal design of a strategic reserve with a discriminatory capacity payment. |
| Keywords: | Investment; Wholesale electricity market; Capacity mechanism; Capacity auction; Strategic reserve |
| JEL: | D41 L94 |
| Date: | 2019–07–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:iuiwop:1292&r=all |